Greenhouse Gas Cuts Easy on American Wallets: Analysis

The anticipated cost to the U.S. economy of reducing emissions is small, even difficult to measure against projected economic growth, but the most expensive policy by far is to do nothing at all.

"We can afford an ambitious climate policy for just pennies on the dollar. It's a small investment that will pay off in cleaner air, new jobs, and a safer world," said Nathaniel Keohane, PhD, director of economic policy and analysis at Environmental Defense Fund, EDF, and a former associate professor of economics at the Yale School of Management.

Coal-fired power plants, like the Gavin plant in Ohio, emit greenhouse gases. Gavin is the largest power plant in Ohio and has two of the seven largest coal-fired generating units ever built. (Photo courtesy AEP)

President George W. Bush has kept the United States out of the Kyoto Protocol, which requires an average cut of 5.2 percent of greenhouse gases below 1990 levels by 2012, because of concerns that it would be bad for the U.S. economy.

The president was particularly concerned about the U.S. ability to compete in the global marketplace against emerging economies such as China and India with no such restrictions.

But increasing scientific evidence of rapid climate change has persuaded many, including about half the U.S. states and some of the largest U.S. corporations, that a national cap-and-trade system for greenhouse gases is desirable sooner rather than later.

Formed in January 2007, the U.S. Climate Action Partnership, USCAP, includes corporations such as Dow, Dupont, Siemens, Alcoa, Ford, General Motors, Duke Energy, and PepsiCo, and six large environmental groups, including Environmental Defense.

In its "Call for Action" last month USCAP says it recognizes that "a robust, market-based cap-and-trade approach is the best way to contain the cost of reducing greenhouse gas emissions over the long term. At the same time, it recognizes additional cost containment measures may be needed to guard against excessively high and volatile allowance prices."

The Environmental Defense study, "What Will it Cost to Protect Ourselves From Global Warming?," is the first comprehensive analysis of the leading economic modeling of cap and trade legislation to combat climate change.

The forecasting models surveyed were performed by five of the most highly respected economic modeling groups in government and academia at the Energy Information Agency, Research Triangle Institute, Harvard, the Massachusetts Institute of Technology, and Pacific Northwest National Laboratories.

The analysis shows that a cap-and-trade policy to cut greenhouse gas emissions responsible for global warming is consistent with long-term economic growth.

The total number of jobs impacted by climate policy in the manufacturing sector over 20 years is substantially below the number of jobs created and destroyed in the sector every three months, the study shows.

And household electricity and natural gas bills rise by only a few dollars a month over the next few decades, well within the rise and fall homeowners already experience.

"Our gross domestic product is projected to reach $26 trillion in January 2030. If we capped greenhouse gases, according to these studies, the economy would hit that same mark by April," Keohane said of the models analyzed in his report.

None of these models takes into account the high costs of inaction. Each looks only at one side of the ledger - the costs of reducing emissions, rather than the benefits of avoiding the consequences of unchecked climate change.

"It's important to keep in mind that these forecasting models compare climate policy to a business-as-usual case that doesn't take the costs of climate change into account," said Keohane. "If we fail to take action on global warming, the future will be anything but business as usual."

According to a recent study by the University of Maryland, runaway global warming will impact every economic sector and every region of the country, straining public budgets and impacting jobs and competitiveness.

The EDF study focuses on cap-and-trade programs that would cut U.S. emissions by 60% or more below current levels by the year 2050 - including the Lieberman-Warner Climate Security Act (S. 2191) currently before the Senate.

A key feature of the report is its broad scope. "The cardinal rule about economic models is: Never trust any single number," Keohane said. "No one model alone is a useful guide to the future, because they all make different assumptions about the factors that drive the economy."

"The models don't agree on much about what the future will look like, but they do agree that the impact of climate policy will be small," he said.

An appendix to the report offers a detailed "Consumer's Guide to Economic Models," discussing the strengths and limitations of the economic models surveyed, as well as the key assumptions behind them.

The new Environmental Defense Fund analysis is available online at http://www.edf.org/climatecosts.

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